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Does your retirement dream include a spectacular vacation once a year? Eating out every night? Not worrying about money?

One way to help make your retirement “happy place” happen is to save now—even a little more. Putting just 1% more of your salary into a tax-advantaged retirement account like a 401(k) or 403(b) could make a noticeable difference in your ability to afford the retirement you want.

“The retirement savings mountain might appear imposing from a distance, but the reality is that the climb isn’t as steep as it looks,” says Jeanne Thompson, vice president of retirement insights at Fidelity. “Small steps can turn into big strides.”

How big? Let’s look at several hypothetical 401(k) investors and see what happens if they contribute just 1% more of their salary to their 401(k) until retirement at age 67.1 A few notes: For simplicity, we use a 401(k) throughout, but the examples also apply to a 403(b) and 457. Our examples assume that the investors’ salaries grow 1.5% a year—adjusted for inflation—which will boost their contribution amounts along the way. We also assume a 7% long-term compounded annual hypothetical rate of return, which aligns with an average long-term return for a growth-focused account.

Take a look at the chart below to see what a difference a small increase can make. Pretty amazing, right?

Saving 1% more can make a big difference.

Hypothetical examples assume that the individual begins saving an extra 1% at the specified age, which could increase along with assumed salary increases of 1.5% annually until age 67. The rate of return is 7% and consists of 4.5% real return and 2.5% inflation. These illustrations assume that the savings rate stays constant throughout the person’s working career. The monthly amount shown is just initial monthly amount since the 1% more contribution will grow with salary increases. Estimated increases in retirement monthly income are in constant 2015 dollars. It is assumed that upon retirement, the real (inflation-adjusted) dollar amount is withdrawn annually through age 93, and that the person takes no loans or hardship withdrawals from his or her workplace plan. All dollars shown (including increases to monthly retirement paycheck) are pretax dollars. Upon distribution, applicable federal, state, and local taxes are due. No federal, state, or local taxes; inflation; or account fees or expenses were considered. If they had been, returns and monthly increases would be lower. Yearly retirement income numbers are rounded for simplicity.

Yes, contributing just 1% more now—no matter your age—can add up. And if you start when you are younger, even a smaller amount can mean more money to spend in retirement. For instance, in our example, even though 25-year-old Bob is saving less than, say, 35-year-old Suzie, he can end up with more retirement income.

And it is never too late. As you can see, if 45-year-old Andrew contributes $58 more a month, that can mean $1,880 more a year in retirement.

If you don’t have a 401(k)

You may be self-employed, not employed, or your employer doesn’t offer a 401(k). But you can and should save in a tax-advantaged account like an IRA. There are several types of IRAs—see the table below.

No 401(k)? Consider other tax-advantaged retirement savings accounts.

Eligibility

2014 and 2015 contribution limits

Traditional or
Roth IRA

Under age 70½ for a traditional IRA
No age limit for a Roth IRA

Must have employment compensation

Income limits apply when a taxpayer or spouse is covered by a retirement plan

$5,500 under age 50

$6,500 age 50 or older

Spousal IRA

Non-wage-earning spouse, provided the other spouse is working and the couple files a joint federal income tax return

$5,500 under age 50

$6,500 age 50 or older

SEP IRA

Must be a sole proprietor, a business owner, in a partnership, or earn self-employment income by providing a service

Lesser of:

25% of compensation

$52,000 for 2014; $53,000 for 2015

If you are already contributing to an IRA, chances are you can contribute more. The average IRA contribution to a Fidelity IRA in 2014 was a little more than $4,000—despite the $5,500 limit for those under age 50, and the $6,500 limit for those age 50 or older. Saving $50 more a month, or $600 a year, can make a real difference.

Let’s look at several hypothetical IRA investors and see what happens if they consistently contribute just $50 more a month to their IRAs until retirement at age 67.2 For our examples, we assume a hypothetical 7% a year compounded. A 25-year old who consistently saves an extra $50 each month in an IRA until age 67, could receive an estimated $4,620 in additional pretax yearly retirement income. A 35-year old could have $2,660, and a 45-year old $1,400.

“The key is to save early, and in tax-advantaged accounts,” says John Sweeney, executive vice president of retirement and investing strategies at Fidelity. “That means trying to contribute as much as you can to your 401(k) and IRA contributions when retirement is years away.”

See how you’re doing

Everyone’s situation is unique, of course. So take the time to see how you are doing with Fidelity Retirement Quick Check (login required). It lets you estimate how additional savings can help improve your income in retirement.

At Fidelity, we recommend saving at least 10% to 15% of your income toward retirement (this includes any amount your employer contributes through matching or profit sharing contributions). If you’re behind, don’t fret. Few people get there overnight. Think of planning for retirement as a journey. The key is to save as much as you can now and try to increase your savings over time.

“The surest way to achieve a financially secure retirement is to start early, save regularly, and increase the amount you save as your income increases,” says Fidelity’s Thompson. “It may enable you to do some of the things you have always dreamed of in retirement.”

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

1. Hypothetical examples assume that the individual saves until retirement age 67, lives through age 93, and receives a 1.5% real (inflation-adjusted) increase in wages per year. Rate of return is 7.0% and consists of 4.5% real return and 2.5% inflation. These illustrations assume that deferral percentage rates stay constant throughout the individuals’ working careers. Estimated increases in retirement monthly income are in constant 2015 dollars. It is assumed that upon retirement the real (inflation-adjusted) dollar amount is withdrawn annually through age 93, and that the individual took no loans or hardship withdrawals from his or her workplace plan. The maximum annual qualified 401(k) retirement plan employee contribution limit in 2015 is $18,000 (or $24,000 if age is 50 or older). All dollars shown (including increases to yearly retirement paycheck) are pretax dollars. Upon distribution, applicable federal, state, and local taxes are due. No federal, state, or local taxes; inflation; or account fees or expenses were considered. If they were, returns and monthly increases would be lower. Hypothetical individual begins saving an extra 1% starting at the specified age which would increase along with assumed real wage increases of 1.5% annually until age 67.

2. Hypothetical examples assume that the individual saves until retirement age 67 and lives through age 93. The 7% rate of return is nominal and consists of 4.5% real return and 2.5% inflation. The hypothetical individual consistently saves an extra $50 per month starting at the specified age until age 67. That $50 would not increase with annual wage increases. All dollars shown (including increases to yearly retirement income) are pretax dollars. Upon distribution, applicable federal, state, and local taxes are due. No federal, state, or local taxes; inflation; or account fees or expenses were considered. If they had been, returns and monthly increases would be lower.

Retirement Quick Check is an educational tool.

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